If you frequent the U.S. every year – as many Canadians do to escape the frigid temperatures of the winter – you may have considered buying a property there. Whether you want to buy a property in the U.S. as a Canadian for yourself or to rent out, the process is not the same.
Below are a few factors you need to consider when buying a property in the U.S. as a Canadian.
Key Points
- Canadians can buy any type of property in the U.S.
- Many mortgage types are available to help Canadians finance a U.S. home purchase, though it may help to use U.S. lenders affiliated with Canadian lending companies.
- You may need more documents when you apply for a mortgage as a non-U.S. resident to finalize a mortgage deal.
- The rules on buying real estate in the U.S. for Canadians may be slightly different than for U.S. residents.
Can I Buy A House In The U.S. As A Canadian?
Yes, Canadians can buy any type of property in the U.S. There are many types of mortgages and lenders available to help finance the purchase. However, you may require additional documents to finance a U.S. property.
Where Can You Get A Mortgage For A U.S. Property As A Canadian?
You’ll likely need some financial assistance to help fund this large purchase. Working with a mortgage broker can help facilitate the mortgage process. A knowledgeable and experienced mortgage broker can help you choose the right mortgage program best suited for your particular situation.
You can also look into big banks in Canada that offer cross-border mortgages for Canadians looking to buy in foreign markets. Some lenders and banks in Canada have a significant presence in the U.S., so they may be able to help provide you with a mortgage to fund a U.S. real estate transaction.
Lastly, you can take out a mortgage with a U.S. bank. However, there are some significant differences between Canadian and American mortgages.
Differences between Canadian And U.S. Mortgages
Compared to Canadian mortgages, U.S. mortgages typically differ in the following ways:
- Takes longer to close — The mortgage industry in the U.S. is more heavily regulated compared to Canada. As such, it usually takes longer to secure a mortgage south of the border. More specifically, it can take anywhere from 45 to 60 days from application to closing.
- More documentation required — Since the U.S. mortgage industry has more stringent regulations compared to Canada, you can expect to be asked for more detailed documentation of your financial situation, including your income, assets, investments, and current debt load.
- Longer amortizations — In Canada, the longest amortization period you can get is 25 years. In the U.S., you can extend that period to 30 years.
What Documents Do You Need To Get A Mortgage In The U.S.?
Much like buying real estate in Canada, you need to submit certain documentation when purchasing a home in the U.S. But as a non-resident of the U.S., the paperwork required may be more demanding than when buying domestically.
You may be required to apply for an Individual Taxpayer Identification Number (ITIN) as per the IRS as a Canadian buying the U.S. To do so, you will need to supply several original documents that will be outlined on the application form.
To get a mortgage in the U.S. from an American bank (if that’s the route you choose), the tax documents required may be different from what you may need to provide here in Canada.
Having said all that, here are the documents that you may need to provide to complete a real estate purchase in the U.S.:
- Proof of a down payment
- Real estate contract
- Real estate agency information
- Copy of your passport
- Proof of address
- International credit report
- 2 years of employment history
- Recent pay stubs
- 2-year history of residency
- 2 years worth of tax submissions
Things You Should Know About Buying A House In The U.S. As A Canadian
Many people make the mistake of thinking that the laws surrounding the purchase and sale of real estate are the same in the U.S. as in Canada. In general, you will want to get familiar with the federal, state, and municipal regulations on foreign homeownership in the U.S., taxes, and property restrictions, as they can differ from what is required in Canada.
Here are some differences that Canadian buyers need to be aware of, such as the following:
Title Transfers
In the U.S., home buyers don’t register the title change of a property, unlike in Canada. Instead, buyers in the U.S. purchase title insurance as part of the real estate transaction.
Availability Of Personal Data
In Canada, personal information from a real estate transaction is only available to real estate boards and agents. These stringent privacy rules are designed to prevent buyers and sellers from finding out everything there is to know about each other.
In U.S., personal data from real estate transactions is available to the public. Buyers can find out all sorts of information on a home, including previous selling price and history, price per square foot, property taxes, Homeowner’s Association (HOA) fees, and so forth.
Probate Laws
When it comes to your heirs inheriting the property in the event of your passing, there may be U.S. probate laws that can slap your beneficiaries with an expensive legal bill. These probate laws may also enforce long wait times during which the asset is frozen before they can inherit your home in the U.S.
Condo Associations
There may be rules with homeowner associations (HOAs) in the U.S., similar to those of condo associations here in Canada surrounding their right to choose their members and to establish legal expectations of homeowners. However, the process may be different in each country. Further, HOAs in the US tend to have more power than Canadian condo corporations, as provincial laws control these corporations.
Understand The Costs Of Owning A Property In The U.S.
Understanding the costs of owning property in the U.S. is an important factor to consider. For starters, you’ll want to see how much a property costs after calculating the exchange from American to Canadian dollars.
| U.S House Price | Exchange Rate | Canada House Price |
| $350,000 | 1.38 | $481,299 |
Based on the example above, a $350,000 home in the U.S. is about $131,300 more in Canadian dollars.
Other common costs you should consider include:
- Down payment
- Mortgage origination fees
- Real estate commissions
- Lawyer fees
- Home inspector fees
- Appraisal fees
- Accounting fees
- Land transfer taxes
- Title fees
In addition to the mortgage payments, there are also ongoing fees that you will need to cover, including the following:
- Utilities
- HOA fees (if applicable)
- Community fees
- Property taxes
- Homeowners’ insurance
- Security
- Repairs and maintenance
Of course, don’t forget to factor in the travel expenses you will incur to get to and from your U.S.-based home.
What If You Want To Rent Out The Property?
Odds are, you won’t be occupying your home in the U.S. full-time. Even if you wanted to, you wouldn’t be able to because laws govern how long foreigners can stay in the U.S. at a time. Generally speaking, that time frame for Canadians is 6 months.
When your home is vacant, you may want to rent it to help pay the mortgage and cover operating expenses. If you plan to rent out your vacation home when you’re not there, you’ll want to double-check the local laws to see if this is allowed. Even if this practice is permitted, there may be a rule that limits the length of time a home can be rented out.
Some HOAs may not permit rentals, whether short or long-term. Find out if an HOA allows rentals of any type before buying.
Taxation of U.S. Rental Property Income
The rental income you collect on your U.S. home is subject to taxation. There are a couple of ways you may be taxed on your U.S. home if you rent it out for part of the year.
30% Withholding Tax
Gross rental income collected by Canadians on U.S. properties is subject to a 30% withholding tax. With this method, you won’t have to file a U.S. tax return to report this rental income, but you’ll still have to report the net rental income on your Canadian tax return. Further, you won’t be able to deduct any expenses from your rental property with this taxation method.
However, any U.S. taxes may be claimed as a foreign tax credit in Canada. This helps reduce the Canadian tax liability by the amount of taxes already paid in the U.S. so you won’t be double taxed.
Net Rental Basis
Alternatively, you can make a one-time election to treat the income as connected with a U.S. business. In this case, your rental income may be taxed at marginal rates based on your net rental income. You would file a U.S. non-resident income tax return on a net rental income basis annually. You may also need to file a separate state tax return, depending on the state where your property is.
Keep in mind that if you’re living in the property for part of the year, different rules apply. In this case, certain expenses may need to be pro-rated based on your personal use of the property.
What Happens If I Sell My U.S. Property?
Much like in Canada, you’ll need to pay taxes on gains when you sell an investment property in the U.S. However, the taxation process works a little differently as a foreigner selling a property in the U.S.
When you sell property in the U.S., you’ll first be obligated to pay the U.S. government, even though you’re a non-resident of the U.S. If you owned the property for at least a year and are a single tax filer, you’ll have to pay long-term capital gains tax at one of the following rates, as of 2024:
- 0% if your income is less than $47,025
- 15% if your income is between $47,026 and $518,900
- 20% if your income is over $518,900
If you owned the property for less than one year, capital gains are taxed as regular income. As mentioned, you’ll also have to report your worldwide gains to the Canadian government when you file your income taxes. As such, you’ll need to pay taxes on income earned from the sale of your U.S. property to both the Canadian and U.S. governments.
The Foreign Investment in Real Property Tax Act
Under the Foreign Investment in Real Property Tax Act (FIRPTA), Canadians selling properties in the U.S. are subject to withholding rules, which require 15% of the sale price to be set aside for the IRS at the point of the sale.
In other words, the IRS will hold these funds until you’ve submitted your U.S. tax return. Once your return is processed, the balance is refunded to you.
However, there are exceptions to this withholding tax rule:
- Cost and use of property — If you sell your U.S. home for less than $300,000 and the buyer intends to use it at least half of the time over the next 2 years, the withholding may be waived.
- Withholding Certificate — If the IRS sends you a Withholding Certificate, the taxes you pay on your earned income will be much less than the withheld amount. Taxes are calculated based on your gains (ie. the amount you paid for the property minus the sale price). Instead, withholding rules apply to the entire sale price.
Final Thoughts
Having a place of your own to retreat to whenever vacation calls is extremely convenient. You can leave all your belongings there and not have to pack so heavily, and you can really establish a home away from home. But to make this work, there are a few important details you will want to become familiar with first. Get in touch with a seasoned real estate agent and mortgage specialist to help fill you in on everything you need to know about buying a home in the U.S. as a Canadian.
